A payroll withholding statement is notification from an employer to an employee or tax office detailing the taxes that have been withheld from an employee's pay. The term is most commonly associated with the W-2 form that summarizes withholdings from an individual employee during the year.

Concept

Withholding means that an employer must pass on some of an employee's earnings to both federal and state tax departments to cover income, social security and Medicare tax liabilities. This procedure is followed instead of the employee receiving all his salary and paying the complete annual tax bill at the end of the year. The amount withheld is an estimate of the expected tax liabilities, based on the employee's earnings and tax status. It won't necessarily prove the correct tax amount because of other financial activities by the employee such as investments or other income. An employee completes a tax return and either makes an additional payment or receives a refund at the end of the year.

Deposits

An employer must normally deposit the withheld money with federal tax authorities by electronic transfer. This is done either monthly or semimonthly depending on the amounts involved. Employers paying a very small amount of total wages may be allowed to pay quarterly in arrears.

Statements

In all cases, the employer must file a quarterly income tax return. This return covers the profits made by the employer and the resulting tax liabilities, and it also details amounts the employer has withheld and deposited. Employers should also detail individual withholdings on any payslips given to employees. The withholdings should be listed alongside other deductions such as contributions to retirement savings accounts.

W-2

The most prominent payroll withholding statement is the W-2. This form details the annual wages and other payments made to an individual by an employer, along with withholdings taken for federal, state and local taxes. Copies of this form go to the employee and relevant tax authorities. The form allows the employee to make sure the correct withholdings have been made and also assists the employee in completing her tax return. Last, it allows tax authorities to verify that the information listed on the tax return is correct.

About the Author

A professional writer since 1998 with a Bachelor of Arts in journalism, John Lister ran the press department for the Plain English Campaign until 2005. He then worked as a freelance writer with credits including national newspapers, magazines and online work. He specializes in technology and communications.